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Author (s):
Heywood Fleisig
Date:
April 1995
Publication (if applicable):
Public Policy for the Private Sector
Abstract (if Available):
The first question any private loan officer is taught to ask is, ?How do I get my money back?? Borrowers have offered two broad answers to that question: giving an unsecured promise to pay, and offering collateral that can be seized and sold by the lender if the borrower fails to pay. This Note discusses the second type of borrowing. Drawing on several World Bank?supported projects, it sets out how legal and regulatory constraints on using movable property as collateral limit access to credit in many client countries. The problem is potentially severe. In industrial countries, movable property?livestock, machines, inventory, equipment, standing crops?can represent as much as a third of the capital stock and half of investment. Where borrowers cannot use this property as collateral for loans, they must pay higher unsecured interest rates. Consequently, they hold less capital per worker and produce less output per person. In Bolivia, the loss in GDP from an inadequate framework for secured transactions is estimated at between 5 percent and 10 percent.
URL:
http://rru.worldbank.org/documents/publicpolicyjournal/043fleisi.pdf
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